The opinion of the court was delivered by: NEAHER
This is an action brought by the United States of America ("the government") to enforce certain tax liens assessed against taxpayer-defendant Colby Academy ("Colby"). The liens amount to over $ 33,000, but the real purpose of this action is to determine who is entitled to the sum of $ 11,333.34 representing the proceeds of a casualty policy insuring Colby and written by defendant Aetna Casualty and Surety Company ("Aetna"). The proceeds are also claimed by defendants Normesh Construction Corporation ("Normesh") and Jack Du Boff Associates, Inc. ("Du Boff"), both of whom received assignments of a portion of the proceeds.
The government has moved for summary judgment and has submitted extensive documentation of its claims. Since defendants Colby, Aetna and Roger W. Kohn claim no interest in the proceeds, the sole question presented on the motion is whether under 26 U.S.C. §§ 6321-23 the interests of Normesh and Du Boff are subordinate to that of the government. For the reasons which follow, the Court is of opinion that the government is entitled to partial summary judgment to the extent indicated below.
The following essential facts are not in dispute. Between 1973 and 1976 the government made a series of assessments against taxpayer Colby for unpaid withholding and Federal Insurance Contributions Act taxes, with contemporaneous notices of demand for payment. As to each of these assessments the government filed a notice of federal tax lien with either the Register's Office for Kings County, where Colby is located, or with the New York Secretary of State in Albany, or in both these State offices. In sum, the assessments were made and notices filed on the following dates and, with penalties and interest computed as of September 10, 1981, represent liens in the following amounts:
Date of Assess- Date of Balance Due,
ment & Notice Filing of with Interest
Tax Period of Demand Notice of Lien* and Penalties
1st Qtr. 1973 8/13/79 11/1/73 $ 1,167.44
2d Qtr. 1973 10/1/73 11/1/73 $ 2,883.23
3d Qtr. 1973 12/1/73 12/19/73 $ 7,192.17
1st Qtr. 1974 7/1/74 1/27/75 $ 6,280.86
2d Qtr. 1974 9/30/74 1/27/75 $ 1,729.43
4th Qtr. 1974 3/31/75 4/14/75 $ 3,501.55
1st Qtr. 1975 9/8/75 10/10/75 $ 6,227.54
2d Qtr. 1975 9/8/75 10/10/75 $ 4,161.10
4th Qtr. 1975 3/29/76 4/8/76 $ 2,462.53
* Where two dates appear, they represent, respectively, filings in
the Kings County Register's Office and in the Office of the New
York Secretary of State.
Affidavit of Robert E. Mirsberger, dated July 28, 1980, Plaintiff's Exh. 1, at P 4; Letter dated Sept. 1, 1981, John F. Murray to the Court. These tax liens were also filed in the public index located at the Office of the District Director, Internal Revenue Service, Brooklyn, New York, on June 30, 1977. Affidavit of Karen B. Brown, dated July 31, 1980, at P 5.
On or about March 15, 1974, Aetna issued to Colby a policy insuring against loss of tuition resulting from damage to the school's premises, Plaintiff's Exh. 2, which were owned by and rented from one Samuel Zarcone. The premises were damaged by a fire on July 5, 1974. That same day, Du Boff, an insurance claims adjuster, was retained by the Dean of Colby to prepare and present Colby's claims to the three companies, including Aetna, which had written policies in favor of Colby. As payment for these services, the agreement assigned to Du Boff 121/2% of the monies recovered.
Plaintiff's Exh. 4. It appears that on November 11, 1974, Du Boff prepared a notice of claim. Plaintiff's Exh. 5. Pursuant to this assignment, Du Boff now claims the sum of $ 929.71.
On July 24, 1974, Normesh entered into an agreement with the owner of the Colby premises, Zarcone, to make certain repairs following the fire. The agreement provided that $ 4,500 would be paid within 60 days and the balance of "$ 9,000.00 when fire loss is paid." Plaintiff's Exh. 9. By an instrument dated "December 1974," Zarcone as "administrator" for Colby assigned to Normesh the proceeds of the insurance policies to the extent of $ 13,845. Plaintiff's Exh. 7. Pursuant to this document, and apparently after partial payment, Normesh now claims $ 8,500 of the proceeds of the Aetna policy.
Colby instituted suit against Aetna on the policy, and judgment in favor of the insured in the amount of $ 17,000 was entered in Supreme Court, Kings County, on April 22, 1976. On the consent of all parties, including the government, a fee of $ 5,666.66 was paid to defendant Roger W. Kohn, Colby's attorney in the suit against Aetna, leaving a fund of $ 11,333.34, which is the subject matter of this action.
Turning to the applicable principles of law, a federal lien imposed pursuant to 26 U.S.C. § 6321 for non-payment of a tax attaches at the time of assessment and continues until the tax deficiency "is satisfied or becomes unenforceable by lapse of time." 26 U.S.C. § 6322. A federal tax lien, moreover, attaches to all property rights of the taxpayer, including his interest in future proceeds of an insurance policy. P.P.G. Industries Inc. v. Hartford Fire Ins. Co., 384 F. Supp. 91 (S.D.N.Y.1974), aff'd, 531 F.2d 58 (2d Cir. 1976); Household Coal & Oil Distributors, Inc. v. NEDC, Inc., 234 N.Y.S.2d 6, 9 (Civil Court, New York County 1962). See Glass City Bank v. United States, 326 U.S. 265, 267, 66 S. Ct. 108, 110, 90 L. Ed. 56 (1945). Under the common law rule of "first in time, first in right," it is settled that a federal tax lien will take priority over all competing interests except those that were "choate" prior to the attachment of the federal lien. United States v. City of New Britain, 347 U.S. 81, 85, 74 S. Ct. 367, 370, 98 L. Ed. 520 (1953). See United States v. Equitable Life Assurance Society, 384 U.S. 323, 328, 86 S. Ct. 1561, 1564, 16 L. Ed. 2d 593 (1966). A lien is considered choate when "the identity of the lienor, the property subject to the lien, and the amount of the lien" are established, United States v. City of New Britain, supra, 347 U.S. at 84, 74 S. Ct. at 369. Moreover, the nature of the property interest giving rise to the competing claim must be determined by reference to State law. Aquilino v. United States, 363 U.S. 509, 80 S. Ct. 1277, 4 L. Ed. 2d 1365 (1960). See Hartford Provision Co. v. United States, 579 F.2d 7, 9 (2d Cir. 1978).
Under New York law, the assignment of a future interest in the proceeds of a claim is an equitable interest only, and does not become a legal assignment until the proceeds have come into existence. Harold Moorstein & Co. v. Excelsior Ins. Co., 25 N.Y.2d 651, 306 N.Y.S.2d 464, 465, 254 N.E.2d 766, (1969). See Fairbanks v. Sargent, 117 N.Y. 320, 22 N.E. 1039 (1889); P.P.G. Industries, Inc. v. Hartford Fire Ins. Co., supra, 384 F. Supp. at 95 (S.D.N.Y.1974), aff'd, 531 F.2d at 63 n.7 (2d Cir. 1976). The assignment of the proceeds of an insurance policy, the amount of which has yet to be determined, creates only an equitable interest that becomes legal and choate when there is a judgment or appropriation of the proceeds in favor of the insured-assignor. See Fairbanks v. Sargent, supra, 117 N.Y. at 336-37, 22 N.E. 1039; P.P.G. Industries, Inc. v. Hartford Fire Ins. Co., supra; Bernstein v. Allstate Ins. Co., 56 Misc. 2d 341, 288 N.Y.S.2d 646 (Civil Court, New York County, 1968). Finally, the ripening of an equitable lien into a legal lien does not relate back to the date of execution of the original assignment. Cordaro v. Cordaro, 18 A.D.2d 774, 235 N.Y.S.2d 289, 290 (App.Div. 4th Dept. 1962), aff'd, 13 N.Y.2d 697, 241 N.Y.S.2d 175, 191 N.E.2d 676 (1963).
Applying these principles, the proceeds of the insurance claim did not come into existence-and Normesh's and Du Boff's naked assignments ripen into choate claims-until the April 22, 1976 judgment in favor of Colby.
It is clear that each of the government's tax claims were assessed and its liens thereby attached prior to that date.
Nonetheless, Normesh seeks to benefit from a statutory exception to the "first in time, first in right" ordinary rule regarding priority. Section 6323(a) of Title 26 provides that a federal tax lien created upon assessment shall not defeat that of a
"purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) (of § 6323) has been filed by the Secretary or his delegate."
In an attorney's affidavit, Normesh claims to have filed a mechanic's lien on December 19, 1974. Eder Affidavit, dated August 29, 1980, at 2. Even though this assertion-which we note is unsupported by documentary materials as required under Rule 56(e), F.R.Civ.P.-may be sufficient to create an issue of fact, the Court is of opinion that it fails to raise a legally material issue that could preclude a grant of partial summary judgment for the government as to the first three tax liens.
Even if Normesh could claim protection under § 6323(a), it would not prevail over those tax liens filed pursuant to § 6323(f) prior to the claimed attachment of the mechanic's lien. At the very earliest, Normesh's interest arose at the time of the assignment and filing of the lien in December 1974. Each of the federal liens assessed for the first, second and third quarters of 1973 were filed in November or December 1973, in both the Kings County Register's Office and the Office of the New York Secretary of State. These filings satisfied the requirements of § 6323(f), see In re Busman, 5 B.R. 332 (Bkrtcy.E.D.N.Y.1980); see also Bankers Trust Co. v. Equitable Life Assurance Society, 19 N.Y.2d 552, 281 N.Y.S.2d 57, 227 N.E.2d 863 (1967); and the government has met subsequently imposed filing requirements.